Reward to risk ratio

Hello, once again I apologise for the beginner questions.

I am wondering if anyone knows how some of the famous traders (ie Paul Tudor Jones) would achieve a reward to risk ratio of 5:1 per individual trade? (I’m guessing this does not include pyramiding, or if it does please let me know)

I do not yet know how to anticipate a realistic profit target in order to set a take profit order to the exact pip value needed for a specific reward to risk ratio, if anyone knows any good resources for setting a healthy take profit target please that would be much appreciated.

Many thanks!

your writing is very interesting. I'm also a newbie. we are waiting for answers from seniors in this forum.

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hey tionge...... you might be waitin awhile...... very likely only paul tudor jones could fully answer that question.... have you watched any of those documentarys on him......

it has always seemed to me, the better r/r trades will be after price turns......

be wary of the common thought which says using certain r/r ratio's you can never go broke..... r/r is no realistic assurance of success.....h
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I actually know of a system trades at that kind of R:R. Dont know how the analyis is done, all I know is its a longer term system with a 100 pips+ single trade expectancy. I think thats the only way you can really pull this off.

Hi,
As far as I understand his approach, Paul Tudor Jones essentially looks to pick turning points in a market on a very tight stop. If he gets this right then a 5:1 R:R is achievable but he also mentions he might make multiple attempts for the same trade idea, each loser costing 1R, for example:

trade#1 buy at 100 stop 90, get hit at 90 to lose 10
trade #2 buy at 80 stop 70 get hit at 70 to lose 10
trade #3 buy at 60 stop 10, stop not hit, run market up to 110 to make 50, 5:1 R:R
So the overall net profit for the trade idea is actually only 30 or 3R even though the winning trade did make 5R

More generally, no-one can consistently accurately forecast in advance what a trade might make which is why profit taking is one of the hardest parts of trading. The basic principle is to take what the market will give, and this gives rise to various approaches to profit taking, e.g.
- fixed targets that look realistically achievable on a technical or fundamental viewpoint
- sticking with a trade until it looks it is running out of steam
- trailing stop moving up behind the advancing price (for a long position and vice-versa)
- time based exits
- measured moves for technical patterns
- exit on first profitable market opening (aka Larry Williams' bailout exit)
and many more.

Exits are ultimately quite subjective so you have to experiment with what feels most comfortable for you and then apply it with consistency and discipline on each and every trade.
Good luck!

"I do not yet know how to "anticipate" a "realistic" profit target in order to set a take profit order to the exact pip value needed for a "specific" reward to risk ratio, "

1-anticipate the unexpected
2- I'm not sure theres such a thing as realistic profit target
3- I think RR needs to be a bit flexible too depending on variables..

There are so many variables including technical analysis (some aren't fans of it) , fundamental analysis (some aren't fans of it) , time of day, news , time frame you're looking at, the pair you're trading, all variables are fluid .Forex has an element of chaos to it and anything "set" in nature might be problematic. Then there are those who feel/know (?) the markets are totally manipulated and nothing previously mentioned matters..

I am NO expert, but i have stared at the charts predominantly UJ for a few thousand hours.. and i have eliminated expectations of predicted price behavior. My 2cents.. having said that I do use SR, candles , TA, i just understand that i might be completely wrong at any time

I totally understand why you would ask the question.

good luck to you with the lessons you will have, I think Oldtraderman is wise and his trading journal is an interesting study on 1min trading and RR and profit taking.

cheers h

risk ratio is not important if u have a good statistic.

I don't know about the trader mentioned but if you are looking for high R/R you could look into predicting the high/low of the day/week/month depending on your timescale preference with a pretty tight stop.

I've done some backtesting into predicting the high/low of the day in EUR/USD with a 10 pip stop with some success but I haven't done enough to have confidence in it as a strategy I'd trade live yet and I'm more focussed on other strategies personally.

It's important to say though as you mentioned that you're a newbie that a lot of people make the mistake that trading is easier or better somehow with a larger R/R and it's just not true. If it suits you better psychologically or as a preference then that's probably the reason to go for it.

More generally, no-one can consistently accurately forecast in advance what a trade might make which is why profit taking is one of the hardest parts of trading. The basic principle is to take what the market will give, and this gives rise to various approaches to profit taking, e.g.
- fixed targets that look realistically achievable on a technical or fundamental viewpoint
- sticking with a trade until it looks it is running out of steam
- trailing stop moving up behind the advancing price (for a long position and vice-versa)
- time based exits
- measured moves for technical patterns
- exit on first profitable market opening (aka Larry Williams' bailout exit)
and many more.